Although universally acknowledged to increase efficiency and optimise risk management, third-party clearing (TPC) in Hong Kong is only now beginning to come of age. At a global level, it is increasingly accepted that the tasks involved with on-exchange clearing activities are better managed by a small number of specialist banks. Challenges around risk, technical connectivity, compliance monitoring and management of margin calls, can create a detrimental drain on brokers' resources. Over the past ten years, brokers across Europe and North America have turned to TPC (that is, the outsourcing of functions to dedicated institutions referred to as global clearing members or global clearing participants) to effectively outsource this burden and to focus on their core activities. Clearing has emerged as a specialist activity in itself: managed by providers capable of accurately tracking and monitoring risk, and by organisations who can generate the necessary scale to deliver economies to market participants. It requires significant IT investment to ensure that volume can be handled efficiently and subject to relevant internal controls.
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